Federal government should reconsider changes to investment deductions, says REIA

Federal government should reconsider changes to investment deductions, says REIA

Changes proposed by the federal government mean that an investor who owns a commercial investment property can claim travel costs for their annual site inspection, but a residential property investor can not.

Malcolm Gunning, president of the REIA.

The federal government should reconsider proposals in the 2017 Budget that involve changes to the deductibility of depreciation and inspection travel costs, says the Real Estate Institute of Australia.

“The REIA supports curbing the abuse of deductions," said REIA President Malcolm Gunning, but added, "these two initiatives are contrary to the principles of a good tax system and the ATO has existing means for addressing abuses and excesses.”

The proposed changes mean that an investor who owns a commercial investment property can claim travel costs for their annual site inspection, but a residential property investor can not.

“One of these principles [of a good tax system] is neutrality, which in essence means that two tax payers in similar circumstances should be treated the same," explained Gunning.

"These initiatives are contrary to this principle with the budget initiative of not allowing for travel to inspect residential investment property meaning that an investor who owns a commercial investment property can claim deductions for their annual site inspection travel costs, but an investor who owns a residential property cannot."

“There are many valid reasons why an owner of investment property would incur costs travelling to a residential rental property," said Gunning.

Gunning said the proposed changes could worsen housing affordability, because residential property investors will face a disincentive to invest outside their home town.

“These changes will do nothing to improve affordability in Sydney and Melbourne," he said, "and indeed it may make it worse as investors in these two cities are discouraged from investing in locations other than their home towns."

Gunning said there is already evidence that regional centres are benefiting from affordability pressures in the big cities, as more buyers move to smaller centres, bringing increased investment and economic activity.

“Anecdotal evidence is indicating that as Sydney and Melbourne prices have increased investors are turning to non-metropolitan locations. This regional investment brings employment for a multitude of regional services. This measure will put a brake on this trend," he said.

Gunning said the proposal to restrict depreciation claims to items purchased and installed in the property by the claiming taxpayer will again treat investors differently.

“Regarding the proposal to restrict depreciation claims to items purchased and installed in the property by the claiming taxpayer, the REIA believes, like travel, it doesn’t treat the investor buying a property that is 12 months old the same as one buying a new property," he said.

"We believe [this change] will distort the market by making properties that are not new less desirable, and the impact on affordability is questionable and may even worsen affordability as existing investors hold on to their property and new investors push up the price of new property which are currently showing signs of easing."

"These changes appear to be more about politics than good policy," concluded Gunning.